Send this to a friend

Madeline Anz Slay successfully used furloughs as a way to weather tough economic storms at her architecture firm earlier this year.

Tamarind Phinisee

(Page 4 of 4)

As the recession rumbles throughout the country, some businesses are looking for ways to cut costs without cutting employees.

Furloughs are one option being pursued.

A furlough is generally defined as a reduction in employees’ work time. Furloughs help companies reduce payroll costs while retaining valuable employees.

According to a Society for Human Resources Management survey, voluntary furloughs and programs that cut back on time spent at work were the top methods used this year to avoid layoffs.

Reid Meyers, a local labor attorney, says the largest expense for businesses — especially small to medium sized companies — is wages.

“So, I can see where a furlough or temporary layoff would certainly be a way to put people on hold out there while that employer sees what happens with the market,” Meyers says.

Cheryl Kirby, labor and employment attorney for Oppenheimer, Blend, Harrison + Tate Inc., says several local companies have furloughed hourly employees or used the Texas shared work program as an alternative to layoffs.

“One of the companies divided the workforce into two groups and scheduled one group to work three days a week and the other to work two days a week,” Kirby says. “The groups then alternated week by week, meaning that the furloughed employees were working 20 hours a week.”

The Texas Workforce Commission’s (TWC) Texas shared work program supplements wages lost by an employee as a result of reduced hours. Participating workers receive partial unemployment insurance benefits based on their reduced hours.

Data from the TWC shows that the use of share work plans in Bexar County and across the state has increased over the past three years.

Mark Lengnick-Hall, professor of management at the University of Texas at San Antonio’s Department of Management, says the use of work furloughs has become a trend, driven in part, by the recession.

“However, even during less severe economic times, companies contemplating layoffs typically use multiple strategies to reduce costs such as hiring freezes, elimination of non-essential spending, etc., before resorting to layoffs,” Lengnick-Hall says.

Karen Monsen, attorney and partner in the commercial and employment litigation practice groups at law firm Jackson Walker LLP, says employers are searching for ways to cut costs without layoffs.

“Many have the impression that a furlough is better than a layoff for employee morale and avoiding the cost of higher unemployment insurance premiums, severance packages and litigation,” Monsen says.

Making ends meet

Of course, when other means of shaving costs have been exhausted, furloughs can be very attractive.

Madeline Anz Slay, owner of locally based architecture firm, Madeline Anz Slay Architecture PLLC, says that earlier this year, work began to slow down for the firm. Though the company had been awarded a number of projects, she says, these jobs were further down the pipeline.

Slay says she didn’t want to lay off employees, and she didn’t want to lose them.

“I just felt that the economy is nobody’s fault. It’s not mine. It’s not theirs. But it’s still something we have to deal with,” Slay says.

Slay says she decided to convert all of her 18 employees from salaried to hourly employees in May.

This meant, she explains, that her employees would only work when needed.

“We basically said you’re going to have zero hours. But we might call you in from time to time,” Slay says, adding that employees were called in as needed on projects.

As an incentive to urge employees to stay with the firm, Slay says she continued to pay all of her employees’ benefits — health insurance, life insurance, short-term and long-term disability, vision and dental — so that employees could still take advantage of these perks.

Employees were also allowed to accrue vacation days as regular days and use these for pay.

“We also paid holidays,” she says.

It turned out to be a winning proposition.

The continuation of these benefits allowed employees to seek other contract work or part-time jobs until projects picked back up at the firm. Meanwhile, the reduced hours helped the company save the money it needed on salaries to continue keeping the employees on the payroll.

The reduced workload, she says, lasted a few months, during which time the firm lost three employees to other companies.

But it retained the remaining employees. Three employees now are back to full-time, salaried status. Three are on-call, unpaid leave and the rest are at 32 hours per week.

Furlough challenges

Of course, using furloughs has a downside. If furloughs are imposed upon employees without some “visible and symbolic” sacrifice by upper management, Lengnick-Hall says, they may seem unfair.

“Once the company makes it through the recession, these employees may leave at the first opportunity because of how they were treated during tough times,” he says.

Also, Lengnick-Hall says, companies may lose good employees who are more marketable and don’t want to deal with a reduction in pay.

“Consequently, a company may retain employees, but not always their best ones,” he says.

Also, Kirby says, a reduction in work time may often result in the employee becoming ineligible for employee benefits.

For example, she says, many group health plans define eligible participants as full-time employees who work at least 30 hours a week.

If an employee’s work week is reduced to 20 hours, he or she would not be eligible to participate in the health plan unless they elected to continue coverage under COBRA.

What some companies have decided to do, Kirby says, is pay a portion of the premiums of furloughed employees who chose COBRA continuation as an incentive to stay with the company.

Barbara A.F. Greene, founder and CEO of Barbara Greene & Associates Inc., says how a company handles furloughs can also affect the surviving workforce and customers. Greene’s company provides career coaching as well as corporate outplacement services.

Therefore, she says, companies should communicate to employees the reason for the decisions they make regarding employment and what to expect.

Industries:

Comments

If you are commenting using a Facebook account, your profile information may be displayed with your comment depending on your privacy settings. By leaving the 'Post to Facebook' box selected, your comment will be published to your Facebook profile in addition to the space below.